Rupee Under Pressure: RBI Steps In with ₹1.73 Lakh Crore Sale to Curb Volatility
New Delhi (The Uttam Hindu): The Reserve Bank of India (RBI) sold a record ₹1.73 lakh crore ($20.2 billion) in the foreign exchange market in November to manage the rupee’s volatility against the US dollar, increasing its net short position in the forward market to ₹5.04 lakh crore ($58.9 billion) by the end of the month according to the central bank's latest monthly bulletin. In comparison, the RBI's net forward sales position at the end of October stood at ₹4.21 lakh crore ($49.18 billion). In November, the central bank bought ₹2.64 lakh crore ($30.8 billion) and sold ₹4.38 lakh crore ($51.1 billion) in foreign currency in the spot market, reflecting an aggressive intervention. The rupee depreciated by 0.48% during the month.
Market participants attributed the RBI's intervention to heavy foreign portfolio investor (FPI) outflows driven by a surge in US Treasury yields following Republican candidate Donald Trump’s decisive victory in the US presidential election. The US dollar also strengthened as the Federal Reserve signalled fewer rate cuts than expected reducing rates by 0.25% (25 basis points) in early December against expectations of a 0.50% (50 basis points) cut. "The RBI had to step in as FPIs sold domestic equities and the dollar surged" said Amit Pabari, managing director at CR Forex. Foreign investors net sold ₹17,98 crore ($2.1 billion) worth of Indian equities in November with the dollar index rising 1.69% to 105.73, reflecting the greenback’s strength against a basket of six major currencies. The RBI’s intervention stands in contrast to its position in the first half of the financial year (April-September) when it was a net buyer, purchasing ₹7,30,000 crore ($8.52 billion) in the spot market. However, by the end of November the central bank had become a net seller, offloading ₹17,91,000 crore ($20.9 billion).
A dealer at a state-owned bank noted that the forward market deficit was in line with expectations. "The forward number was anticipated to reach around ₹5.14 lakh crore ($60 billion) in November, so this comes as no surprise. The RBI intervened across markets as volatility surged after Trump’s win and foreign investors sold heavily," the dealer said. “The RBI was intervening in the market because we were seeing volatility after Trump’s win. The yen was also down. FIIs were selling,” said a dealer at a state-owned bank. “The forward number was expected to be around ₹5.14 lakh crore ($60 billion) in November, so there is no surprise there,” he added. In the spot market, the RBI net sold ₹16,30,000 crore ($1.9 billion) in November 2023. In contrast, the central bank was a net buyer of ₹35,35,000 crore ($41.27 billion) in the previous financial year.
